November 2008

America waded deeper into bureaucratic manure on Tuesday with the unveiling of yet another bailout acronym. This one goes by the letters TALF, which in case you haven’t heard, stands for Term Asset-Backed Securities Loan Facility.  Unlike TARP (Troubled Asset Relief Program), which was a bailout “facility” for banks and other institutional lenders, this one is mainly for consumers. "As the economy is turning down,” explained Treasury Secretary Paulson, “it is very important that lending be available to consumers."  It seems not to have occurred to the man that perhaps consumers are not in a borrowing mood, even on such blithefully easy terms as the Government might wish to provide. The price tag for this latest acronym? A reported $800 billion. But, hey, who’s counting? If that number is correct, and if you toss in the Citigroup “rescue” surreptitiously tacked and glued into place over the weekend, it’s been a pretty expensive few days for taxpayers.  Citi will get $20 billion in up-front money so that the company can maintain payroll, but another $306 billion in portfolio assets will also receive blanket guarantees from the Government. Helicopter Money Concerning TALF, if its purpose is to rain down helicopter money on America, the chopper reportedly won’t even be airborne until February. The initial plan is for the New York Fed to extend up to $200 billion in non-recourse loans to holders of asset-backed securities backed by highly rated consumer and small business loans. This is not a bad idea as far as bailout concepts go, since it is designed to help liquefy a lending niche that so far has somehow managed to survive on its own.  But that doesn’t mean the niche has room to grow, or that it will even be viable come February. Our guess is that by then even

The pattern shown in the chart points to 612.75, a 28% decline from these levels. Although the overall pattern is pretty easy on the eyes and therefore moderately compelling, the C-D follow-through leg is taking longer to develop than we might have expected. Is this mild buoyancy a sign of accumulation? Perhaps. But we'd need to see a thrust that impales both of the labeled peaks in a single bound before we'd infer that 'C' is likely to be exceeded by a rally, and with it our downright reasonable target at 612.

The 877.70 target billboarded in Thursday's commentary will remain our lodestone, but more immediately the futures will need to clear a minor midpoint resistance at 822.10 to build some thrust. If they are holding above it halfway into today's session, assume that a finishing stroke to at least 837.50 is imminent.

If yesterday's low at 84.71 holds, DXY could recover to as high as 87.03 by week's end or early next. However, the index would need to close above that Hidden Pivot for two consecutive days to hint of a resurgence to new highs. The target is derived from a "reverse" abcd pattern like the one used in the gold chart that accompanied yesterday's commentary.

After turning in a sizzling performance in recent days, gold faces a crucial test not far above. The precise number to watch is 877.70, an important “Hidden Pivot” resistance that lies exactly $57.30 above yesterday’s Comex settlement price for the December contract. Although 877.70 is our minimum expectation for the near-term, the pivot could also stop the rally cold. On the other hand, if the futures should get past it �' and, better yet, do so with relative ease -- that would suggest more strength is coming, perhaps the booster stage of a decisive thrust past $1000. We’ll be monitoring the action at 877.70 closely in any event, since the amount of stopping power this Hidden Pivot displays can tell us how much buying power is still percolating beneath the surface. If the resistance is bulldozed into oblivion mere minutes after first being touched, that would strongly imply that a move to $1000 is likely for this rally cycle, which began on October 24 from $688. 90. (If you’d like to see the trading touts that went out to paid subscribers yesterday, click here and then on the image itself.) One reason we think 877.70 will prove crucial is that this number is tied to both of the analytical methods we use: Hidden Pivots and Morge Median lines. In this instance, the two methods have produced an identical rally target (although the Morge number will migrate gently higher as the days go by). The graphic above, for Comex December Gold, shows both methods merged on the same Ensign daily chart. The blue lines represent three tines of a pitchfork whose median-line comes in now at exactly 877.70. The diagonal green lines represent a Hidden Pivot ABCD pattern, but with a twist: Instead of starting the pattern at the usual point

There's no denying the power of yesterday's rally, even if it was driven by mass hysteria. The thrust projects to 9170, assuming the midpoint sibling of that Hidden Pivot, 8699, can be pushed out of the way. For the Mini-Dow contract, the precise equivalents, respectively, are 8686 and 9160. Calculating the latter targets required a trick, visually speaking, and so I have reproduced the chart alongside.

Yesterday's breakdown was potentially serious, since it surpassed both an internal and an external low on the intraday charts. If the dollar has indeed made an important top, we should see this first pullback play out as an abcd pattern that exceeds its 'd' target. The pattern needs to develop a bit more before we can read it properly, but we'll be monitoring it in real time in any event

Action will shift to the March contract at week's end, but I've moved off the December so that you are aware of an 11.045 target that's equivalent to the one at 11.055 given here yesterday for the December. The midpoint, now support, lies at 9.935, so any pullback to that number should be viewed as a buying opportunity (albeit with a tight stop-loss).

The current, frenzied leap shows promise of developing into a great short, since nothing that has been driving APPL relentlessly lower in recent months will have changed because of the Citigroup charade. My target is 98.99, so keep your bulletin launcher on, or tune to the chat room, if you'd like to lay 'em out near a potential top. I'll probably recommend naked-shorting a near-the-money call, but there will be an alternative for subscribers who'd prefer another route. I don't say a "less risky" route because sometimes taking a naked short position in puts/calls is less risky than buying them. _______ UPDATE: Apple took its obligatory bounce, but it wasn't nearly strong enough to get us short at our target. We'll likely have to settle for less if we're going to get a piece of the stock's fall to $70 or lower.